The momentum that the globalization of the rare earths market has gained over the past two years is set to be highlighted as investors await the announcement that Japan will begin importing rare earth elements (REEs) from India.

The announcement is expected to be made when Prime Minister Manmohan Singh visits the Asian nation next month to sign a new agreement under the continuous Bilateral Strategic Dialogue Framework. The move once again underlines the manufacturing giant’s intention to diversify its rare earth supply base.

Indian media sources stated that the umbrella pact is expected to start the joint development of rare earth metals in India; however, it is also thought to be a politically-strategic move aimed at strengthening trade relations in what Singh has labelled a “transformational” relationship.

Japan “developing alternative sources of rare earths”

“Against the backdrop of successes of existing collaboration between the two countries in rare-earth resources, a new and more extensive agreement was on the cards during Prime Minister Manmohan Singh’s official visit to Japan scheduled for November,” a senior government officialtold Mining Weekly. “The proposed agreement would aim to expand current collaborations that ensure supplies of rare earths to Japan from Indian resources. The next stage would be to enhance the flow of technology and leverage collaboration in developing resource bases in third countries.”

“In the process, India too would benefit from Japan’s $1.5-billion corpus earmarked for developing alternative sources of rare earths in the wake of the country’s disputes with China, the virtual monopolistic supplier of rare earths to the world,” the official added.

Supply safeguard

Many view the move as a potential safeguard against a possible embargo by China amid the Japan-China territorial dispute over the Senkaku Islands. Earlier this month, tensions rose when Japanese Prime Minister Yoshihiko Noda confirmed that Tokyo is unwilling to compromise on its claim to the uninhabited islands. This dispute is threatening to damage the countries’ $340 billion trade relationship.

Analysts feel that an already-fragile REE market is likely to be affected by the standoff as persistent rumors suggest that Chinese rare earth producers could ban exports to Japan, dampening Japanese manufacturing activities.

Pundits forecast that the agreement could result in India supplying 4,000 tons of rare earths to Japan, or approximately 15 percent of the country’s annual needs.

A bold statement

Toyota (TSE:7203) recently announced that it has developed a method to manufacture hybrid and electric vehicles without the use of REEs; while statements like that have become more commonplace, the impending agreement with India is by far the boldest statement that Japan, the world’s largest importer of rare earths, has made in terms of its desire to wean itself away from China, the world’s largest supplier.

While investor attention will likely be centered on what this move could mean for Japan-China relations, analysts will also be paying close attention to India in what is being hailed as a significant step forward in its attempt to ramp up REE production.